What’s the value of a swamp? Traditionally, an accountant would book the value at the cost of acquisition. Environmentalists might argue for the value of its natural preservation and diversity, leading the charge for philanthropic contributions to save the wetlands. Politicians might try to eliminate it in favor of a parking lot for new development or to protect a watershed for tourism, hunting and fishing, making impassioned speeches about its importance to the economy. But what if that swamp could naturally convert waste water from a nearby manufacturing site at a cost far cheaper than building and maintaining a water treatment plant? Suddenly, the interests of the accountant, the environmentalist, the politician, and the corporate engineer coalesce around the same goal: protecting the wetland.

“It’s all about scale,” said Dr. Neil Hawkins, Corporate Vice President, EH&S, and Chief Sustainability Officer, The Dow Chemical Company (Dow), as he spoke of the company’s collaboration with The Nature Conservancy (TNC). “We spend three to four billion dollars every year in capital. We spend $1.6 billion dollars every year in research. How do you leverage those investments for a win-win for the company and for nature?”

Moving ‘Natural Capital’ from Theory to Practice

In 2011, Andrew N. Liveris, Chairman and CEO of Dow, and Mark Tercek, CEO of TNC, launched a courageous collaboration. Speaking from the Detroit Economic Club, Liveris and Tercek announced that one of world’s largest science and technology companies and one of the world’s largest environmental nonprofits would join forces to figure out how to value the services of nature in order to inform business decisions.

“It’s never been a ‘photo-op’ kind of relationship,” said Hawkins. “It was always built around the notion that we were solving together one of the biggest challenges facing the planet: how to bring the business community into saving ecosystems because it makes business sense to do that.”

The original inspiration for this collaborative effort was the Millennium Ecosystem Assessment, which provided a scientific appraisal of the world’s ecosystems and the services they provide. Published in 2005, the reports represented the first attempts to codify the value of nature for business, building on the pioneering work of Paul Hawken, Amory Lovins, and L. Hunter Lovins in Natural Capitalism.

Yet, to date, such efforts had been more theoretical than actionable. “It’s one thing to be around UN meetings saying, ‘Business and nature go hand in hand.’ It’s another thing to figure out how to actually operationalize at a specific site,” said Hawkins. Although Dow didn’t originate the idea of valuing nature for business, the company was committed to figuring out how to operationalize it.

Starting with the conviction that nature had significant potential value for companies that could be converted into financial terms and used to better inform business decisions, Dow went looking for collaborators. They found in Mark Tercek, and TNC, the collaborator they needed. Tercek joined TNC in 2008, after a 24-year career in finance at Goldman Sachs, bringing with him extensive business experience. A champion of natural capital—valuing nature for its own sake as well as for the services it can provide—he saw the collaboration with Dow as an opportunity to bring it to life.

Forging an Environmental Collaboration  That Is Built to Last

Companies sometimes embrace public partnerships with nonprofit partners for the sake of appearances, or short-term brand benefit, but alliances that achieve real outcomes are forged—literally, in the pressure and heat of negotiation, dialogue, and compromise. In the beginning, the idea of valuing the services of nature was foreign to both organizations. Incorporated in 1897, Dow is a deeply conservative, traditional science and technology company, with an engineering-driven culture. The Nature Conservancy is a confederation of local organizations, with a history of philanthropic funding and environmental activism. At every level of the collaboration, there were obstacles to overcome. At the highest level, leaders worked through classic change management challenges. Yet, instead of managing change across one organization, it was two. Hawkins is quick to point out the enormous goodwill between the organizations and the commitment to the shared goal, but still, “It wasn’t twice as hard, it was more like change management, squared.”

Former House Speaker Tip O’Neill once quipped, “All politics is local.” So, it turns out, is real environmentalism. Hawkins described the initial conversations between the parties, which began by exploring valuations of large geographic areas. “Let’s say you’re talking about the Great Lakes,” Hawkins said. “You can value that with regard to tourism, shipping, et cetera.” But for businesses to make decisions, they need a microeconomic approach, for example focusing on a specific location with a specific operation such as Ludington, Michigan, a small town on the eastern shore of Lake Michigan, home to a former Dow calcium carbonate plant that may become a conservation and recreation site in the near future. “Estimating the value of nature to Dow and to the community is very difficult,” he explained. “You have to be able to estimate the value of nature on a narrow scale that is very geographically specific.” The challenge was figuring out how to assess natural assets at the local level, in order to build that value into decisions that concerned that particular site, to ensure Dow was able to make better business decisions for nature and the company.

At the operational level, one of the greatest initial challenges was logistical: finding availability in the schedules of people in both organizations who had the most to contribute, many of whom were already fully obligated with other responsibilities. Dow engineers and TNC biologists had to make time to learn one another’s languages, and earn trust. Doing so required relentless and attentive leadership—constant articulation, direction, enrollment, re-enrollment, encouragement, feedback, and obstacle navigation—to ensure the joint teams had the right direction and right environment for productive output.

Measuring the Value of Nature for Business

During the initial pilots in Freeport, Texas and Santa Vitória, Brazil, local employees from both organizations demonstrated that it was possible to estimate, and then operationalize, the value of nature. That information was then used to appropriately inform business decisions. “The single biggest output from the collaboration so far is the ESII tool,” said Hawkins. Pronounced “easy” the Ecosystem Services Identification & Inventory, or ESII, Tool is designed to help companies estimate the business value from nature on and adjacent to their sites, as well as the public value from lands on-site. “It came out of an idea we had watching Texas,” Hawkins explained. “The Texas pilot was becoming very academic, and we needed to make sure we would come out of this with a tool which could be used by an engineer at a site outside of the U.S.”

ESII enables a trained technician to enter site characteristics via simple, multiple choice questions on a tablet device. For example, whether the ground cover is grass, forest, or shrub, or whether water is present in the area on a perpetual or seasonal basis.  The answers to these and other questions are then combined with other data sources such as map data and climate data, into an algorithm that derives the level of ecosystem service performance of a specific site. ESII focuses on eight initial ecosystem services that are most critical to site operations and the surrounding community: water storage, water quality, water provisioning, air quality, flood control, climate regulation, erosion control, and visual and noise aesthetics. Most importantly, ESII delivers output in units that site personnel can use—for example, water storage in gallons to help the site assess needs for storm-water management.  This output data can then be integrated into financial models that assess the value provided by the ecosystem—and compare it with alternatives.

ESII has been tested at a number of sites across the United States, including in Illinois, Delaware, Pennsylvania, Michigan, and West Virginia. Once the reports of the analysis and supporting cases are complete, the ESII model will be made publically available.

Dow has already generated $200 million of economic value from the Seadrift wetland, a proof of concept that gave the company the confidence to commit to deliver another $1 billion in value (as measured through net present value calculations) through projects that are good for business and good for ecosystems by 2025, as set forth in the company’s 10-year sustainability goals. By 2020, all research and development, capital, and real estate projects will be required to measure the value of ecosystem services to their bottom line.

Dow’s 2025 Sustainability Goals, the company’s third set of 10-year goals, were set in the context of the United Nations 2030 Sustainable Development Goals, ratified by the UN General Assembly in September. The outcome of this $1 billion collaboration with TNC will make a significant contribution towards advancing SDG #15 to protect, restore, and promote the sustainable use of the environment.

“I think people should study the economic value for the projects we’ve already done, and recognize this as a win-win project,” said Hawkins. “We’re not preserving nature through philanthropy. We’re doing it, because nature provides a better service at lower cost,” he said.

Corporations spend millions of dollars on strategic philanthropy, some of which is used to save ecosystems. Many also spend billions on capital investments, research, and development. TNC and Dow are learning together how to leverage those resources and in so doing, are demonstrating how collaboration—even among seemingly unlikely partners—can advance the Global Goals, enabling companies everywhere to value nature in a way that makes protecting precious natural environments business as usual.

 

Tune in Thursday, November 12 at PYXERAglobal.org for a discussion between leaders from The Dow Chemical Company and The Nature Conservancy on their courageous collaboration to preserve the environment. Sign up here to learn more.